CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Consolidated income statement 74 Consolidated balance sheet 75 Consolidated statement of shareholders equity 76 Consolidated cash flow statement 77 Notes General information 78 Performance 81 Operating assets and liabilities 89 Capital and financial risk management 97 Group structure 101 Other information 108 Report of the auditors 114 FINANCIAL STATEMENTS OF KOMAX HOLDING AG Balance sheet 118 Income statement 119 Notes 120 Proposal for the appropriation of profit 125 Report of the auditors 126 73
Consolidated income statement in TCHF Notes 2017 % 2016 1 % Net Sales 407 275 389 455 Other operating income 1.2 1 234 2 365 Revenues 1.2 408 509 100.0 391 820 100.0 Change in inventory of unfinished and finished goods 8 076 5 911 Cost of materials 160 109 149 788 Gross profit 256 476 62.8 247 943 63.3 Personnel expenses 1.3 136 982 131 588 Depreciation on property, plant, and equipment 2.4 7 705 6 914 Depreciation on intangible assets 2.6 3 341 2 082 Other operating expenses 1.3 53 379 51 935 Operating profit (EBIT) 55 069 13.5 55 424 14.1 Financial result 1.4 819 2 148 Ordinary profit 54 250 13.3 53 276 13.6 Non-operating result 1.5 99 198 Extraordinary result 1.5 3 601 3 688 Group profit before taxes (EBT) 50 550 12.4 49 390 12.6 Income taxes 1.6 8 449 10 687 Group profit after taxes (EAT) 42 101 10.3 38 703 9.9 Of which attributable to: Shareholders of Komax Holding AG 42 101 38 703 Non-controlling interest 0 0 Basic earnings per share (in CHF) 1.7 11.05 10.34 Diluted earnings per share (in CHF) 1.7 10.99 10.22 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 74
Consolidated balance sheet in TCHF Notes 31.12.2017 % 31.12.2016 1 % Assets Cash and cash equivalents 59 291 48 531 Securities 21 0 Trade receivables 2.1 99 723 85 190 Other receivables 2.1 29 459 25 319 Inventories 2.2 92 020 70 410 Accrued income and prepaid expenses 3 803 2 429 Assets held for sale 2.3 6 785 0 Total current assets 291 102 70.2 231 879 64.9 Property, plant, and equipment 2.4 93 719 83 741 Non-operating properties 2.5 0 5 311 Intangible assets 2.6 14 480 14 294 Investments in associates 4.3 0 670 Deferred tax assets 1.6 13 021 12 169 Other non-current receivables 2.7 2 136 8 996 Total non-current assets 123 356 29.8 125 181 35.1 Total assets 414 458 100.0 357 060 100.0 Liabilities Current financial liabilities 3.1 0 78 Trade payables 22 348 18 776 Other payables 2.8 34 438 28 146 Current provisions 2.8 2 359 2 222 Accrued expenses and deferred income 19 361 21 097 Total current liabilities 78 506 18.9 70 319 19.7 Non-current financial liabilities 3.1 69 856 31 445 Other non-current liabilities 2 710 3 922 Deferred tax liabilities 1.6 5 208 5 200 Total non-current liabilities 77 774 18.8 40 567 11.4 Total liabilities 156 280 37.7 110 886 31.1 Share capital 3.2 383 377 Capital surplus 28 649 27 670 Treasury shares 3.2 4 054 2 105 Retained earnings 233 200 220 232 Equity attributable to shareholders of Komax Holding AG 258 178 62.3 246 174 68.9 Total liabilities and shareholders equity 414 458 100.0 357 060 100.0 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 75
Consolidated statement of shareholders equity in TCHF Notes Share capital Premium Treasury shares Goodwill offset Currency differences Other retained earnings Total retained earnings Equity shareholders of Komax Holding AG Balance on 31 December 2015 (according to IFRS) 369 25 548 2 191 0 29 760 289 168 259 408 283 134 Swiss GAAP FER adjustments 1 0 0 0 38 866 29 760 32 861 41 967 41 967 Balance on 1 January 2016 Swiss GAAP FER 369 25 548 2 191 38 866 0 256 307 217 441 241 167 Group profit after taxes 38 703 38 703 38 703 Capital increase from exercise of options 3.2 8 5 457 0 5 465 Distribution out of reserves from capital contributions 5 623 0 5 623 Dividend paid 16 870 16 870 16 870 Purchase of treasury shares 3.2 2 105 0 2 105 Sale of treasury shares 3.2 2 288 2 060 0 4 348 Share-based payments 131 1 583 1 583 1 714 Goodwill offset with shareholders equity 2.6 19 893 19 893 19 893 Currency translation differences recorded in the reporting period 732 732 732 Balance on 31 December 2016 377 27 670 2 105 58 759 732 279 723 220 232 246 174 Balance on 1 January 2017 377 27 670 2 105 58 759 732 279 723 220 232 246 174 Group profit after taxes 42 101 42 101 42 101 Capital increase from exercise of options 3.2 6 6 707 0 6 713 Distribution out of reserves from capital contributions 5 728 0 5 728 Dividend paid 19 094 19 094 19 094 Purchase of treasury shares 3.2 2 098 0 2 098 Share-based payments 149 772 772 921 Goodwill offset with shareholders equity 2.6 13 267 13 267 13 267 Currency translation differences recorded in the reporting period 2 456 2 456 2 456 Balance on 31 December 2017 383 28 649 4 054 72 026 1 724 303 502 233 200 258 178 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 76
Consolidated cash flow statement in TCHF Notes 2017 2016 1 Cash flow from operating activities Group profit after taxes 42 101 38 703 Adjustment for non-cash items Taxes 1.6 8 449 10 687 Depreciation and impairment of property, plant, and equipment 2.4/2.5 7 898 7 105 Depreciation and impairment of intangible assets 2.6 3 341 2 082 Profit ( ) / loss (+) from sale of non-current assets 50 190 Expense for share-based payments 921 1 714 Net financial result 1.4 819 2 148 Other non-cash items 2 475 1 333 Interest received and other financial income 1 345 1 507 Interest paid and other financial expenses 2 566 6 631 Taxes paid 10 101 11 766 Increase (+) / decrease ( ) in provisions 7 1 149 Increase ( ) / decrease (+) in trade receivables 11 409 3 703 Increase ( ) / decrease (+) in inventories 15 526 7 154 Increase (+) / decrease ( ) in trade payables 2 691 2 420 Increase ( ) / decrease (+) in other net current assets 3 628 7 606 Total cash flow from operating activities 26 767 36 906 Cash flow from investing activities Investments in property, plant, and equipment 2.4/2.5 18 742 18 171 Sale of property, plant, and equipment 259 1 086 Investments in intangible assets 2.6 3 459 4 656 Sale of intangible assets 6 6 Investments in associates 0 34 Investments in Group companies and participations 2 17 163 36 428 Sale of Group companies 3 4 100 23 589 Purchase of minority interests 0 2 233 Decrease in granted loans 650 357 Sale of securities 0 19 Total cash flow from investing activities 34 349 36 465 Free cash flow 7 582 441 Cash flow from financing activities Decrease in current financial liabilities 153 2 483 Decrease in non-current financial liabilities 1 075 0 Increase in current financial liabilities 0 78 Increase in non-current financial liabilities 37 795 14 309 Capital increase (share-based payments) 6 713 5 465 Distribution out of reserves from capital contributions 5 728 5 623 Dividend paid 19 094 16 870 Purchase of treasury shares 3.2 2 098 2 105 Sale of treasury shares 3.2 0 4 349 Total cash flow from financing activities 16 360 2 880 Effect of currency translations on cash and cash equivalents 1 982 87 Increase (+) / decrease ( ) in funds 10 760 2 352 Cash and cash equivalents at 1 January 48 531 50 883 Cash and cash equivalents at 31 December 59 291 48 531 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Less cash and cash equivalents acquired. 3 Less cash and cash equivalents sold. 77
Notes to the consolidated financial statements General information Headquartered in Dierikon, Switzerland, Komax Holding AG (parent company), together with its subsidiary companies (the Komax Group), is a pioneer and market leader in the field of automatic wire processing, providing clients with innovative, future-oriented solutions in any situation that calls for precise contact connections. The present consolidated financial statements were adopted by the Board of Directors of Komax Holding AG on 8 March 2018 and released for publication. Their approval by the Annual General Meeting, scheduled for 19 April 2018, is pending. Accounting policies The consolidated financial statements of the Komax Group are based on the individual financial statements of the Group companies, compiled in accordance with uniform standards, as at 31 December 2017. With effect from 1 January 2017, the consolidated financial statements have been drawn up in accordance with the entire existing guidelines of Swiss GAAP FER (Swiss Accounting and Reporting Recommendations). Furthermore, the provisions of the Swiss company law have been complied with. The consolidated financial statements are based on the principle of historic acquisition cost (with the exception of securities and derivative financial instruments, which are recorded at their fair values), and have been drawn up under the going concern assumption. The accounting and valuation principles relevant to an understanding of the annual financial statements are described in the relevant explanatory notes. Adjustments in connection with the change of accounting principles In its media release of 21 March 2017, Komax announced that it was changing its accounting standard from IFRS to Swiss GAAP FER with effect from the 2017 financial year. The change was driven by the following key considerations: The constant widening of the scope of regulation under IFRS and the ever-increasing number of complex and formal detailed regulations. The Swiss GAAP FER accounting standard is particularly suited to the needs of mediumsized companies like the Komax Group. The latter standard continues to guarantee shareholders transparent reporting in keeping with the true and fair principle. The accounting standards applied in the preparation and presentation of the consolidated financial statements for 2017 deviate from the consolidated financial statements for 2016 drawn up in accordance with IFRS in the following key points: a) Goodwill from acquisitions and associated companies Goodwill and technologies from acquisitions and associated companies are directly offset against retained earnings in shareholders equity, in keeping with the option that applies at the point of acquisition under Swiss GAAP FER 30 Consolidated financial statements. Under IFRS, goodwill was capitalized and reviewed for impairment on an annual basis, whereas prior to acquisitions not capitalized technologies were separately capitalized as part of the purchase price allocation process and amortized over their estimated economic lifetime. According to Swiss GAAP FER, they are not separately recognized, but remain subsumed under goodwill. Under Swiss GAAP FER, transaction costs incurred in connection with acquisitions are treated as a component part of acquisition costs. Under IFRS, transaction costs were recognized in the income statement. 78
b) Employee benefits Under Swiss GAAP FER 16 Pension benefit obligations, the economic obligations and benefits of Swiss pension schemes are ascertained on the basis of figures drawn up in accordance with Swiss GAAP FER 26 Accounting of pension plans. The economic impact of the pension schemes of foreign subsidiaries is ascertained in accordance with locally applied valuation methods. Employer contribution reserves and comparable items are capitalized under Swiss GAAP FER 16. Under IFRS, defined-benefit pension plans were calculated according to the projected unit credit method and recorded in the balance sheet in accordance with IAS 19. c) Tax-loss carry forwards Komax has elected not to capitalize future tax savings from offsettable tax-loss carry forwards. The use of these tax-loss carry forwards is recorded upon realization. Under IFRS, deferred tax claims in connection with tax losses were taken into account to the extent that it was deemed probable that future taxable profits would be generated so that these losses could be used in the foreseeable future. d) Deferred income taxes The above-mentioned valuation and accounting adjustments have the corresponding repercussions for deferred income taxes in the balance sheet and the income statement. e) Reclassification in shareholders equity As part of the changeover to Swiss GAAP FER, the cumulative currency translation differences were reset/reversed as of 1 January 2016 and offset against retained earnings. Under Swiss GAAP FER, the result from divestments (discontinued operations) therefore only contains the currency translation differences arising after 1 January 2016. The presentation and format of the balance sheet, income statement, statement of shareholders equity, and cash flow statement were adjusted in keeping with the requirements of Swiss GAAP FER. Prior periods were adjusted accordingly to facilitate comparability with the new presentation of the current reporting period (restatement). The repercussions of the above-mentioned adjustments for shareholders equity and the income statement of Komax are summarized in the following tables: Adjustment effects shareholders equity in TCHF 31.12.2016 01.01.2016 Shareholders equity under IFRS 311 910 283 134 Adjustments under Swiss GAAP FER Offsetting of goodwill against shareholders equity 47 441 30 662 Offsetting of technology against shareholders equity as component part of goodwill (incl. deferred taxes) 9 712 8 204 IAS 19 adjustments (incl. deferred taxes) 7 732 13 919 Non-capitalization of deferred taxes from offsettable tax-loss carry forwards 16 315 17 020 Shareholders equity under Swiss GAAP FER 246 174 241 167 79
Adjustment effects Group profit after taxes (EAT) in TCHF 2016 Group profit after taxes (EAT) under IFRS 35 489 Adjustments under Swiss GAAP FER Transaction costs from acquisitions 192 Amortization of intangible assets 1 492 IAS 19 adjustments (incl. deferred taxes) 963 Discontinued operations (effect of currency translation differences) 944 Impact of non-capitalization of deferred taxes from offsettable tax-loss carry forwards 1 549 Group profit after taxes (EAT) under Swiss GAAP FER 38 703 Key recognition and measurement assumptions Preparation of the consolidated financial statements requires the Board of Directors and Group Management to make estimates and assumptions, whereby such estimates and assumptions have an effect on the accounting principles applied and are reflected in the amounts stated under assets, liabilities, income, expenses, and related disclosures. Their estimates and assumptions are based on past experience and on various other factors deemed applicable in the current situation. These form the basis for reporting those assets and liabilities that cannot be measured directly from other sources. The actual values may differ from these estimates. The following material estimates are included in the consolidated financial statements: Recognition of revenue according to POC method 83 Current and deferred income taxes 88 Impairment of property, plant, and equipment 91 Impairment of intangible assets and goodwill 95 Contingent consideration 96 Provisions 96 Page Key events of the reporting period As mentioned in the Shareholders letter on pages 2 and 3, the year 2017 was characterized by strong growth in order intake and revenues, the acquisitions of Laselec and Practical Solution, as well as significant investment in research and development. The operating profit matches almost the prior-year figure and Group profit after taxes rose by 8.8%. The credit line of the syndicated loan agreement was increased from CHF 100 million to CHF 140 million in order to ensure the financing of the high investments. Mainly due to these investments, free cash flow resulted in a negative figure. With an equity ratio of more than 62%, Komax continues to be very robustly financed. With effect from 1 January 2017, Komax changed the accounting standard from IFRS to Swiss GAAP FER. The accounting policies disclose in detail that this change mainly had an impact on the valuation of goodwill, the employee benefits and the deferred tax assets. Events after the balance sheet date No significant events occurred between the balance sheet date and the approval of the consolidated financial statements by the Board of Directors on 8 March 2018 which might adversely affect the information content of the 2017 consolidated financial statements or which would require disclosure. 80
1 Performance In this section, we provide details of the 2017 result of the Komax Group. In addition to earnings per share, we also provide details on revenues, expenses, the financial result, and taxes. The operating profit (EBIT) of the Komax Group decreased from CHF 55.4 million in 2016 to CHF 55.1 million in 2017. The chart below illustrates the year-on-year change between the current reporting period and the prior-year. in CHF million 75 8.5 5.4 60 55.4 2.0 1.4 55.1 45 30 15 EBIT 2016 Gross profit Personnel expenses Depreciation Operating expenses EBIT 2017 1.1 Segment information The Komax Group is a global technology company that focuses on markets in the automation sector. As a manufacturer of innovative and high-quality solutions for the wire processing industry, Komax helps its customers implement economical and safe manufacturing processes, especially in the automotive supply sector. All Group companies are active in wire processing, have a uniform client base, and are centrally managed. The Board of Directors and the Group Executive Committee, which make the key strategic and operating decisions, manage the Komax Group primarily on the basis of the financial statements of the individual companies, the Management Information System, and the consolidated financial statements. Due to the commercial similarity and interconnections of the Group companies, Komax presents its business in amalgamated form as a single segment, in accordance with Swiss GAAP FER 31. 81
Up until the sale of the Medtech business unit in April 2016, the Komax Group had two segments. The corresponding segment information is set out below: in TCHF 2017 2016 1 Wire 2 Medtech Group Wire 2 Medtech Group Net sales from external customers 407 275 407 275 370 398 19 057 389 455 Net sales from other segments 0 0 0 Total net sales 407 275 407 275 370 398 19 057 389 455 EBIT 55 069 55 069 55 202 222 55 424 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Including elimination of intersegment revenues and corporate costs. 1.2 Revenues a) Revenues by region The percentage breakdown of revenues by region is as follows: 2017 2.2% Switzerland 19.9% Asia/Pacific 2016 2.3% Switzerland 18.9% Asia/Pacific 18.6% North and South America 22.2% North and South America 10.5% Africa 7.4% Africa 48.8% Europe 49.2% Europe 82
b) Construction contracts In the current reporting period, sales of CHF 11.7 million (2016: CHF 23.3 million) were recorded from long-term construction contracts on the basis of the POC method. c) Other operating income in TCHF 2017 2016 1 Own work capitalized 820 1 630 Government grants 184 68 Gains from the disposal non-current assets 116 305 Other income 114 362 Total other operating income 1 234 2 365 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Key recognition and measurement assumptions Automated assembly and production contracts are measured according to the POC method, provided the assessment meets the requirements of Swiss GAAP FER 22 Long-term contracts. Although projects are assessed monthly and in good faith in accordance with comprehensive project management guidelines, subsequent corrections may be required. These corrections are made in the following period and may have a positive or negative impact on revenue in this period. 83
Recognition and measurement Revenue recognition: The Komax Group s consolidated income statement is compiled using the nature of expense method. Net sales comprise the fair value of considerations received or receivable for the sale of goods and services in the course of ordinary business activities after deducting VAT, returns, discounts, and price reductions, and eliminating intragroup sales. Revenues are recognized as described below. For any intermediated transactions, only the value of services provided by Komax itself is reported. Transactions with a number of individually identifiable component parts are recorded and valued separately. Sale of goods: Revenue from the sale of goods is recognized when risk and rewards of ownership have been transferred to the buyer. All expenses connected with sales are recognized on an accrual basis. Sale of services: Revenue from the sale of services is recognized in accordance with progress on the service according to the ratio of completed to still outstanding services to be performed during the financial year in which the services are rendered. Manufacturing contracts: Manufacturing contracts in the automated assembly and production business units, involving the customer-specific manufacture of systems, are valued according to the percentage of completion method (POC method) in accordance with Swiss GAAP FER 22. On the balance sheet, these are reported either under Trade receivables or Other payables, depending on the degree to which they are underfinanced or overfinanced. The percentage of completion is calculated according to the cost-to-cost method (costs incurred in relation to overall estimated costs of the contract). Anticipated project losses are recognized in full in the income statement. Any costs of debt capital are capitalized provided debt capital is raised for the purpose of financing the project and its costs can be directly attributed to a manufacturing contract. Leases with Komax as lessor: Contractual relationships in which Komax acts as lessor are reported as financial leases if all risks and returns associated with ownership are essentially transferred to the lessee. At the beginning of the lease, lease payments are recognized in the balance sheet in the amount of the net investment value arising from the lease. Revenue is recorded in the same way as the direct sale of goods. Financial income is spread over the term of the lease. Assets that are the subject of operating leases are reported in the balance sheet in accordance with their characteristics, and are written down at the normal rates that apply to assets of that type. Lease income is recognized in the income statement on a linear basis over the term of the lease. Leases with Komax as lessee: Only in exceptional cases does Komax act as lessee in financial lease agreements. A financial lease arises when the lessor transfers virtually all the risks and benefits associated with ownership of the leasing object to the lessee. At the beginning of the contract term, the object in question is recorded on the balance sheet as both an investment asset and a liability at its fair value or (if lower) at the net cash value of future leasing payments. Every lease instalment is broken down into financing costs on the one hand and repayment of the residual debt on the other, so that the interest rate remains constant for the residual liability. Financing costs are booked directly to the income statement as an expense. Capitalized leasing objects are depreciated over their estimated economically useful lives, or (if lower) over the contractual period in question. An operating lease agreement arises when a substantial proportion of the risks associated with ownership remain with the lessor. Payments for operating leasing agreements are booked to the income statement as an expense in a linear way for the entire duration of the agreement. Government grants: Government grants are recognized if it is likely that the payments will be received and Komax can fulfil the conditions attached to such subsidies. These are recognized in Other operating income, regardless of when payment is received, and on a pro rata basis in the period in which the associated costs are incurred, and charged to the income statement as an expense. Grants relating to an asset are deducted from the carrying amount. 84
1.3 Expenses a) Personnel expenses in TCHF 2017 2016 1 Wages and salaries 109 448 102 369 Share-based payments settled with equity instruments 1 090 1 777 Share-based payments settled in cash 284 1 541 Social security and pension contributions 21 581 21 271 Other personnel costs (in particular training and development) 4 579 4 630 Total personnel expenses 136 982 131 588 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). b) Other operating expenses in TCHF 2017 2016 1 Expenditure on operating equipment and energy 2 238 2 266 Rental expenses 3 078 2 886 Repair and maintenance expenses 13 955 12 542 Third-party services for development expenses 7 128 6 064 Representation and marketing expenses 11 593 11 338 Legal and consultancy expenses 4 225 5 040 Shipping and packaging expenses 6 114 6 649 Expenditure on administration and sales 2 921 3 102 Other expenditure 2 127 2 048 Total other operating expenses 53 379 51 935 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 1.4 Financial result in TCHF 2017 2016 1 Financial income Interest income 454 333 Exchange rate gains on foreign currencies 7 078 6 245 Total financial income 7 532 6 578 Financial expenses Interest expenses 1 241 1 802 Exchange rate losses on foreign currencies 7 636 6 984 Change in fair value of contingent consideration arrangements 0 79 Total financial expenses 8 877 8 865 Result from associated companies 526 139 Total financial result 819 2 148 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 85
Recognition and measurement Interests: Interest income and expenses are accrued using the effective interest rate method. 1.5 Non-operating and extraordinary result The non-operating result includes the income and expenses from non-operating properties. The extraordinary result contains expenses of CHF 3.6 million relating to an impairment of a loan granted to an associated company. In the corresponding prior-year period, the expenses incurred in connection with the restructuring at the Porta Westfalica site in Germany (CHF 2.4 million) and the result from the sale of the former Medtech business unit (CHF 1.3 million) are contained in the extraordinary result. Recognition and measurement Non-operating result: Non-operating result is expense and income which arise from events or transactions that clearly differ from the usual business activities of the organisation. Extraordinary result: Expense and income which arise extremely rarely in the context of the ordinary operations and which are not predictable are considered as extraordinary. 1.6 Taxes a) Income taxes in TCHF 2017 2016 1 Current income taxes 8 766 10 636 Deferred tax income (+) / tax expenses ( ) 317 51 Total income taxes 8 449 10 687 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Analysis of the tax rate in TCHF 2017 % 2016 1 % Group profit before taxes (EBT) 50 550 49 390 Expected tax expenses 7 521 14.9 7 959 16.1 Impact of non-capitalized tax-loss carry forwards 1 475 2.9 4 516 9.1 Utilization of non-capitalized tax-loss carry forwards 384 0.8 1 228 2.5 Effect of changes in tax rate 45 0.1 17 0.0 Tax credits / charges from prior-years 161 0.3 1 293 2.6 Effect of non-deductible expenses 189 0.4 287 0.6 Effect of non-taxable income 136 0.3 67 0.1 Non-reclaimable withholding taxes 119 0.2 563 1.1 Others 129 0.2 67 0.1 Effective tax expenses 8 449 16.7 10 687 21.6 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 86
As the Group is internationally active, its income taxes are dependent on a number of different tax jurisdictions. The expected income tax rate is equivalent to the weighted average of tax rates of those countries in which the Group is active. Due to the composition of the taxable income of the Group, as well as changes in local tax rates, this Group tax rate varies from year to year. The expected tax rate based on the ordinary result was at 14.5% (2016: 15.5%). b) Deferred tax assets and liabilities in TCHF 31.12.2017 31.12.2016 1 Property, plant, and equipment / intangible assets 9 870 9 666 Trade receivables and inventories 2 4 107 3 160 Provisions 1 146 1 145 Other items 684 1 080 Total deferred tax assets (gross) 15 807 15 051 Offset against deferred tax liabilities 2 786 2 882 Balance sheet deferred tax assets 13 021 12 169 Property, plant, and equipment / intangible assets 3 137 3 722 Trade receivables and inventories 3 534 2 715 Provisions 1 152 726 Other items 171 919 Total deferred tax liabilities (gross) 7 994 8 082 Offset against deferred tax assets 2 786 2 882 Balance sheet deferred tax liabilities 5 208 5 200 Net deferred tax assets (+) / tax liabilities ( ) 7 813 6 969 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 2 Including unrealized intragroup profit. The non-capitalized and unused tax-loss carry forwards expire as follows: in TCHF Within 5 years After more than 5 years Total Expiry of unutilized tax-loss carry forwards 31 December 2017 3 382 65 888 69 270 31 December 2016 2 034 62 379 64 413 This results in a deferred tax claim (not recognized in the balance sheet) for as yet unutilized tax-loss carry forwards of CHF 19.6 million (31 December 2016: CHF 22.0 million) as well as CHF 3.4 million (31 December 2016: CHF 3.5 million) not recognized tax credits. 87
Key recognition and measurement assumptions In determining the assets and liabilities from current and deferred income taxes, estimates must be made on the basis of existing tax laws and ordinances. Numerous internal and external factors may have favorable and unfavorable effects on the assets and liabilities from income taxes. These factors include changes in tax laws and ordinances, as well as the way they are interpreted, in addition to changes in tax rates and the total amount of taxable income for the particular location. Any changes may affect the assets and liabilities from current and deferred income taxes carried in future reporting periods. Recognition and measurement Deferred taxes: Deferred and future tax expenses are calculated on the basis of the comprehensive liability method. This method is based on the tax rates and tax regulations applicable on the balance sheet date or which have in essence been enacted and are expected to apply at the time the deferred tax claim is realized or the deferred tax liability is settled. Deferred and future taxes are calculated on the basis of the temporary differences in value between the individual balance sheets and balance sheets for tax purposes. Such differences primarily exist in the case of non-current assets, inventories, and some provisions. Deferred tax assets are recognized in the amount corresponding to the probability that the Group companies in question will generate sufficient future taxable income to absorb the relevant positive differences in the tax assets. Loss carry forwards: Future tax savings from offsettable tax-loss carry forwards are not capitalized. The use of these tax-loss carry forwards is recorded upon realization. Temporary differences on investments in subsidiaries and associates: Deferred tax liabilities are provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference cannot be determined by the Group and it is consequently probable that the temporary difference will not reverse in the foreseeable future. 1.7 Earnings per share (EPS) in CHF 2017 2016 1 Group profit (attributable to equity holders of the parent company) 42 100 813 38 703 234 Weighted average number of outstanding shares 3 810 276 3 741 364 Basic earnings per share 11.05 10.34 Group profit (attributable to equity holders of the parent company) 42 100 813 38 703 234 Weighted average number of outstanding shares 3 810 276 3 741 364 Adjustment for dilution effect of share options 22 094 46 729 Weighted average number of outstanding shares for calculating diluted earnings per share 3 832 370 3 788 093 Diluted earnings per share 10.99 10.22 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Recognition and measurement Earnings per share: Basic earnings per share are calculated by dividing the consolidated net earnings by the average number of shares outstanding during the fiscal year, excluding treasury shares. Diluted earnings per share are calculated by adding all option rights and non-vested equity rights which would have had a dilutive effect to the average number of shares outstanding. 88
2 Operating assets and liabilities In this section we describe the current and non-current operating assets and liabilities. Among other things, this includes further details on receivables, inventories, tangible assets, and intangible assets. 2.1 Current receivables a) Trade receivables in TCHF 31.12.2017 31.12.2016 1 Trade receivables 94 413 83 519 less provision for impairment 302 1 142 Accruals for construction contracts 12 516 6 125 less prepayments for construction contracts 6 904 3 312 Receivables arising from POC 5 612 2 813 Total 99 723 85 190 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Overdue trade receivables that had not been written down amounted to CHF 21.6 million on 31 December 2017 (31 December 2016: CHF 19.2 million). Their maturity structure is set out in the following table: in TCHF Number of days 1 30 31 60 61 90 91 120 >120 Total as at 31 December 2017 8 698 6 134 2 532 1 646 2 631 21 641 as at 31 December 2016 1 8 275 2 653 3 658 2 659 1 923 19 168 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). b) Other receivables In addition to prepayments to suppliers of CHF 1.1 million (31 December 2016: CHF 0.7 million), other receivables mainly comprise credits due from government organizations (tax authorities) and bills receivable. Recognition and measurement Current receivables: Receivables are recorded at nominal value. Impaired receivables are value-adjusted on an individual basis; no flat-rate value adjustments are calculated for the remaining portfolio. For manufacturing contracts of systems, the inventory includes all costs associated with the systems as well as the production costs. The order costs comprise all costs attributable to the contract from the date the order is received until the balance sheet date. The order proceeds per manufacturing contract are recorded as at 31 December according to the POC. 89
2.2 Inventories in TCHF 31.12.2017 31.12.2016 1 Manufacturing components and spare parts 53 336 41 724 Semi-finished goods / work in process 13 974 9 038 Finished goods 33 371 28 037 Gross value inventories 100 681 78 799 less impairment 8 661 8 389 Inventories 92 020 70 410 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Recognition and measurement Inventories: Inventories are valued at the lower of acquisition / production costs and net market value. Acquisition / production costs encompass all direct and indirect expenses incurred in bringing inventories to their current location or state (full costs). Discounts are treated as acquisition price reductions. For all inventory components, the ascertainment of value is undertaken for the most part in accordance with the FIFO method. The current market price in the sales market in question is assumed when determining net market value. 2.3 Assets held for sale The building in York (USA) that was reported under non-operating properties in the past, is shown as held for sale since the end of 2017. The sales process has been started at the end of 2017 and was already concluded in January 2018. In addition, the building in S. Domingos de Rana (Portugal) is also reported as held for sale and was therefore regrouped from the property, plant, and equipment. The sales process has also been started at the end of 2017 and is expected to be completed in the first quarter 2018. 90
2.4 Property, plant, and equipment in TCHF Undeveloped property Land Buildings Machines and equipment Other tangible fixed assets Assets under construction Total property, plant, and equipment Costs As at 31 December 2015 1 1 141 15 727 72 057 37 391 7 756 4 770 138 842 Additions 0 13 7 851 5 458 2 243 2 606 18 171 Disposals 0 467 310 2 015 377 0 3 169 Change in scope of consolidation 494 0 5 4 566 944 0 5 011 Reclassifications 0 0 3 358 458 0 3 816 0 Currency differences 0 76 537 73 26 0 712 As at 31 December 2016 1 1 635 15 197 82 424 36 653 8 652 3 560 148 121 Additions 0 189 670 3 269 1 915 12 520 18 563 Disposals 0 0 76 769 477 0 1 322 Change in scope of consolidation 0 84 379 1 285 55 0 1 803 Reclassifications 0 633 3 810 30 13 95 4 495 Currency differences 0 112 628 6 165 0 899 As at 31 December 2017 1 635 14 949 80 215 40 462 10 323 15 985 163 569 Depreciation As at 31 December 2015 1 0 0 38 485 20 571 4 687 0 63 743 Additions 0 0 2 543 3 044 1 327 0 6 914 Disposals 0 0 73 1 952 318 0 2 343 Change in scope of consolidation 0 0 0 3 060 948 0 4 008 Currency differences 0 0 55 14 5 0 74 As at 31 December 2016 1 0 0 41 010 18 617 4 753 0 64 380 Additions 0 0 2 756 3 461 1 488 0 7 705 Disposals 0 0 0 479 381 0 860 Change in scope of consolidation 0 0 116 979 36 0 1 131 Reclassifications 0 0 2 802 0 0 0 2 802 Currency differences 0 0 207 20 69 0 296 As at 31 December 2017 0 0 41 287 22 598 5 965 0 69 850 Book values As at 31 December 2015 1 1 141 15 727 33 572 16 820 3 069 4 770 75 099 As at 31 December 2016 1 1 635 15 197 41 414 18 036 3 899 3 560 83 741 As at 31 December 2017 1 635 14 949 38 928 17 864 4 358 15 985 93 719 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). Key recognition and measurement assumptions Property, plant, and equipment are tested for impairment at least once a year. To determine whether impairment exists, estimates are made of the expected future cash flows arising from use. Actual cash flows may differ from the discounted future cash flows based on these estimates. 91
Recognition and measurement Property, plant, and equipment: Property, plant, and equipment are accounted for at historical acquisition or production cost less accumulated depreciation. Borrowing costs that incurred during the construction phase through the financing of assets under construction, are part of the acquisition cost if they are material. Depreciation is linear over the expected service lifetime. Depreciation period Asset category Years Machinery 7 10 Tools 7 Measuring, testing, and controlling devices 5 Operating installations 10 Warehouse installations 10 14 Vehicles 5 8 Office equipment 3 10 Information technology 3 5 Factory buildings 33 Office buildings 40 Land no depreciation 2.5 Non-operating properties Changes in gross values in TCHF 2017 2016 Total as at 1 January 6 860 6 660 Additions 179 0 Regrouping to assets classified as held for sale 6 771 0 Currency differences 268 200 Total as at 31 December 0 6 860 Changes in depreciation in TCHF 2017 2016 Total as at 1 January 1 549 1 311 Depreciation 193 191 Regrouping to assets classified as held for sale 1 679 0 Currency differences 63 47 Total as at 31 December 0 1 549 Net value non-operating properties 0 5 311 Recognition and measurement Non-operating properties: Investment property encompasses land and buildings held with a view to generating rental income or for purposes of capital appreciation, and not for internal production purposes, the delivery of goods or the provision of services, administrative purposes, or sales in the context of ordinary business activity. Investment property is valued at acquisition or construction cost less cumulative depreciation. 92
2.6 Intangible assets a) Movements in the intangible assets in TCHF Software Patents Software in implementation Total intangible assets Costs As at 31 December 2015 1 14 868 4 051 6 416 25 335 Additions 2 499 0 2 157 4 656 Disposals 163 0 0 163 Change in scope of consolidation 1 987 11 0 1 976 Reclassifications 22 0 22 0 Currency differences 24 0 0 24 As at 31 December 2016 1 15 215 4 062 8 551 27 828 Additions 3 074 0 385 3 459 Disposals 66 0 0 66 Change in scope of consolidation 141 0 0 141 Reclassifications 8 518 0 8 518 0 Currency differences 149 1 0 150 As at 31 December 2017 27 031 4 063 418 31 512 Depreciation As at 31 December 2015 1 9 192 4 050 0 13 242 Additions 2 072 10 0 2 082 Disposals 131 0 0 131 Change in scope of consolidation 1 650 0 0 1 650 Currency differences 9 0 0 9 As at 31 December 2016 1 9 474 4 060 0 13 534 Additions 3 339 2 0 3 341 Disposals 60 0 0 60 Change in scope of consolidation 117 0 0 117 Currency differences 99 1 0 100 As at 31 December 2017 12 969 4 063 0 17 032 Book values As at 31 December 2015 1 5 676 1 6 416 12 093 As at 31 December 2016 1 5 741 2 8 551 14 294 As at 31 December 2017 14 062 0 418 14 480 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 93
b) Goodwill Goodwill is offset against Group shareholders equity upon the acquisition of a subsidiary or the interest in an associated company. Assuming a useful life of 5 years for trading companies acquired and 10 years for production operations acquired plus depreciation on a straight-line basis, the theoretical capitalization of goodwill would have the following impact on the consolidated balance sheet: in TCHF 2017 2016 Goodwill subsidiaries Goodwill associated companies Total Goodwill subsidiaries Goodwill associated companies Total Historical costs as at 1 January 57 308 1 530 58 838 37 362 1 504 38 866 Additions 14 797 0 14 797 32 016 26 32 042 Disposals 0 1 530 1 530 12 102 0 12 102 Currency differences 41 0 41 32 0 32 Historical costs as at 31 December 72 064 0 72 064 57 308 1 530 58 838 Theoretical accumulated depreciation as at 1 January 17 781 303 18 084 24 574 150 24 724 Theoretical depreciation 6 673 115 6 788 5 282 153 5 435 Theoretical depreciation on disposals 0 418 418 12 102 0 12 102 Currency differences 88 0 88 27 0 27 Theoretical accumulated depreciation as at 31 December 24 366 0 24 366 17 781 303 18 084 Theoretical net book value 31 December 47 698 0 47 698 39 527 1 227 40 754 The capitalisation and depreciation of the goodwill would have the following theoretical impacts on the shareholders equity and the group profit after taxes: in TCHF 31.12.2017 31.12.2016 Shareholders equity according to balance sheet 258 178 246 174 Theoretical capitalization of net book value of goodwill 47 698 40 754 Theoretical tax impacts 715 985 Theoretical shareholders equity 306 591 287 913 in TCHF 2017 2016 Group profit after taxes (EAT) according to income statement 42 101 38 703 Theoretical goodwill depreciation 6 788 5 435 Theoretical impact of goodwill disposals 418 12 102 Theoretical tax impacts 235 28 Theoretical Group profit after taxes (EAT) 35 496 45 398 94
Key recognition and measurement assumptions Intangible assets and Goodwill are tested for impairment if indicators reflect a possible impairment. To determine whether impairment exists, estimates are made of the expected future cash flows arising from use. Actual cash flows may differ from the discounted future cash flows based on these estimates. Recognition and measurement Software: Purchased software licenses are capitalized at acquisition or production cost plus costs incurred in readying them for use. The total acquisition cost is amortized on a linear basis over three to seven years. Costs associated with the development or maintenance of software are recorded as expenses at the time they are incurred. Patents: Patents are recognized at historical acquisition cost less cumulative amortization. Acquisition costs are written down in a linear way over patent life. Research and development: Research and development expenditure is fully charged to the income statement. These costs are contained in the positions Personnel expenses and Other operating expenses. Goodwill: Companies acquired over the course of the year are revalued and consolidated at the point of acquisition in keeping with standardized Group principles. The difference between the acquisition cost (including material transaction costs) and the prorated fair value of the net assets acquired is described as goodwill. Any potentially existing but not previously capitalized intangible assets taken over as part of the acquisition such as brands, technology, rights of use, or client lists are not separately recognized, but remain subsumed under goodwill. Goodwill can also arise from investments in associated companies, whereby this amounts to the difference between the acquisition cost of the investment and the prorated fair value of the net assets acquired. The goodwill resulting from acquisitions is directly offset against Group shareholders equity. If the purchase price contains components that are dependent on future results, these components are estimated as accurately as possible at the point of acquisition and then capitalized. In the event of deviations when the purchase price is definitively settled at a later date, the goodwill offset against shareholders equity is adjusted accordingly. In case of disposal, acquired goodwill offset with equity at an earlier date is to be considered at original cost to determine the profit or loss recognised in the income statement. 2.7 Other non-current receivables in TCHF 31.12.2017 31.12.2016 1 Present value of minimum lease payments 0 46 Non-current loans to associates 1 337 5 501 Contingent consideration 0 2 000 Rent deposit and other non-current receivables 799 1 449 Total 2 136 8 996 1 Since the start of 2017, the consolidated financial statements have been drawn up in accordance with Swiss GAAP FER. The prior-year figures have been revised accordingly (see accounting policies). 95
2.8 Other liabilities a) Other payables in TCHF 31.12.2017 31.12.2016 Prepayments by customers 11 355 7 456 Contingent consideration 4 357 3 900 Current income tax liabilities 4 978 5 628 Prepayments on construction contracts 5 077 2 640 less accruals / deferrals in respect of construction contracts 2 451 1 955 Liabilities arising from POC 2 626 685 Other positions 11 122 10 477 Total other payables 34 438 28 146 Key recognition and measurement assumptions For the determination of the fair value of a contingent consideration, profit and revenue forecasts as well as the current exchange rates are used that might result in a higher or lower fair value measurement. In addition, the continued employment of certain selling shareholders was assumed. b) Current provisions in TCHF 2017 2016 Total as at 1 January 2 222 3 666 Additional provisions 2 126 2 141 Change in scope of consolidation 113 287 Amounts utilized during the year 1 448 2 588 Unused amounts reversed 672 711 Currency differences 18 1 Total as at 31 December 2 359 2 222 Current provisions are warranty provisions that include material and personnel costs in relation to warranty work. Key recognition and measurement assumptions In relation to machines and systems already delivered, Komax calculates the necessary warranty provisions on the balance sheet date on the basis of analysis and estimates. The actual costs may differ from the provisions stated. Any differences may affect the provision carried for warranty events in future reporting periods and therefore the reported result for the period. Recognition and measurement Provisions: Provisions are formed if the Group has a current legal or constructive obligation arising from an event in the past, if it appears probable that the asset base will be negatively impacted by settlement of the obligation, and if the amount of the provision can be reliably determined. Provisions for warranties are based on past payments, revenues in prior-years and current contracts. Komax normally gives a one-year warranty on machines and systems. 96